India?s truckers and the government are engaged in a who-blinks-first war of attrition. The truckers have refused to back off from their strike despite some nominal government concessions and the government is threatening the truckers with the cancellation of their licenses. In the midst of this stand off, it?s ordinary consumers that will suffer from shortages and rise in prices of goods. Leaving aside the absurdity of some of the demands made by the truckers?such as cutting the price of diesel by Rs 10/litre, reducing the cost of tyres by 35% and exemption from registration and filing obligations to tax authorities?the strike does bring to fore some of the genuine problems faced by the Indian trucking industry.
Some of the problems of the industry, as our columnist points out, are outside the domain of policy and inherent to the way the trucking industry in India has developed. The industry in India is highly fragmented which prevents the accrual of important cost economies of scale. Freight rates in India are still among the cheapest in the world, which puts severe pressure on profit margins. The low freights can be sustained because the cost of trucks is still very cheap; a majority of trucks are of another vintage. The industry also reports a shortage of personnel, especially drivers. It is when all these problems collide with what truckers view as perverse government policy that things boil over. The trucking industry, like most others, has been hit by the slowdown. And truckers can rightly complain about the complexity and inefficiency of government tax levies. India?s curious federalism, which enables each state to levy taxes at its border, and which allows each state to issue its own permit to truckers, prevents the smooth functioning of a single market?and causes much grief to truckers. Often, truckers have to put up with long delays at border queues and have to use longer routes to avoid permit issues. There is certainly a case for rationalising the way tax is levied and collected?ideally one central authority ought to do it and distribute the revenues to the states. Also, the government could consider providing greater service tax relief than it has?so far only certain taxable services provided by subcontractors to a goods transport company have been exempted from service tax levy. In the longer run, however, the only solution to trucking woes is large-scale consolidation of the industry.